An International Monetary Fund (IMF) team led by Mr. Shanaka J. Peiris
visited Myanmar from November 6th −17th, 2017, to conduct discussions for
the 2017 Article IV consultations. At the conclusion of this visit, Mr.
Peiris issued the following statement:
“The economy stabilized in 2016/17. The new government saw a challenging
first year with lower-than-expected growth of 5.9 percent in 2016/17 mainly
due to weak agriculture production and exports, and temporary suspension of
some construction projects in Yangon. The fiscal consolidation to about 3
percent of GDP deficit in 2016/17, from the election year deficit of about
4 ½ percent of GDP, helped to reduce central bank financing of the deficit
and imbalances. Inflation moderated to 6.8 percent, and the current account
deficit fell to about 3.9 percent of GDP in 2016/17 from 5.1 percent
2015/16. The current account deficit continues to be mainly financed by
FDI, with the real exchange rate and international reserves (at 3.2 months
of prospective imports) broadly stable.
“The medium-term macroeconomic outlook remains favorable. Growth is
expected to rebound to 6.7 percent in 2017/18 mainly supported by a
recovering agriculture sector and exports. Higher fiscal spending
anticipated in the second half of 2017/18 due to buoyant tax revenues and
the revenue-neutral supplementary budget will also support growth. However,
the near-term growth trajectory is moderately weaker than previously
expected, reflecting a subdued pick up in domestic investment and
uncertainties related to the Rakhine state crisis particularly for tourism.
Over the medium term, growth is expected to gradually pick up toward the
estimated potential rate of about 7.0 - 7.5 percent, reflecting continued
large FDI inflows and an improvement in public investment spending and
efficiency. In line with development needs, the current account balance is
expected to remain in deficit, given buoyant imports associated with FDI
and government expenditure.
“Risks are tilted to the downside. The banking sector needs to adjust to
important new prudential regulations after a period of rapid credit growth.
The internal conflict and humanitarian crisis in Northern Rakhine state
could affect development finance and investor sentiment, although the
direct economic impact appears to have been largely localized so far.
Additional risks stem mainly from external sources including commodity
prices, potentially volatile global financial markets, and exposure to
spillovers from China. Flood effects have been moderate this year, but
natural disasters remain an ever-present risk. On the upside,
implementation of a more detailed strategic reform plan and higher
infrastructure investment would raise potential growth.
“Myanmar’s initial phase of economic liberalization led to an impressive
growth takeoff and poverty reduction; now a second wave of reforms is
needed to sustain the momentum. Reforms should be focused on agriculture,
the banking system and gradual interest rate liberalization,
infrastructure, trade, natural resource management and the legal framework,
including further opening up the economy to joint foreign ventures
(amendments to Companies Act). A well-sequenced second wave of reforms and
greater public investment efficiency would help the economy further
integrate with global value chains and foster inclusion.
“Fiscal policy should be geared toward achieving the Sustainable
Development Goals (SDGs) while being anchored on debt sustainability and
lowering central bank financing of the deficit. Staff welcomed the rising
share of social spending and recent initiative to allocate more spending to
address regional disparities, particularly for Rakhine state reconstruction
and rehabilitation of refugee returns in that state. Fiscal space for
increased spending in these areas and public infrastructure over the medium
term can be achieved through a combination of expenditure rebalancing,
improved Public Financial Management (PFM) and further revenue
mobilization, potentially supplemented with greater use of external
concessionary finance. Revenue mobilization should build on the good
progress achieved in tax administration, followed by the next phase of
modernizing tax laws. A strong focus is also needed on PFM reforms and
restructuring of State Economic Enterprises, which have become an
increasing burden on the budget, particularly in the electricity and
financial sector. State-owned banks should be restructured in line with the
financial sector reform process. Electricity tariffs need to be
rationalized to reduce the subsidies to the state-owned electricity company
while mitigating the impact on the poor.
“A market-determined exchange rate will help cushion the economy from
shocks and strengthen monetary transmission. While steps toward a market
determined exchange rate and active liquidity management have strengthened
the monetary and exchange policy framework, greater exchange rate
flexibility and deepening of interbank markets would strengthen policy
transmission.
“Myanmar continues to work towards safeguarding financial stability. The
banking system is adjusting to the issuance of necessary key prudential
regulations to upgrade the regulatory framework towards international
standards. Staff advised the authorities to implement the regulations in a
way that supports financial stability and deepening. Further progress in
financial sector and interest rate liberalization must proceed at a pace
commensurate with the central bank’s capacity to regulate and supervise.”
The staff team met with the governor and deputy governors of the Central
Bank of Myanmar (CBM), the union minister and the deputy ministers of
Ministry of Planning and Finance (MoPF), senior government officials,
parliamentary members, private sector representatives, and the financial
community. We offer our sincere gratitude to the authorities for their
cooperation and hospitality.
